Why Beijing Will OK Coke's China Deal

Posted by: Bruce Einhorn on September 8, 2008

In his China column on MarketWatch Craig Stephen writes investors are worried the Chinese government might nix Coke’s proposed $2.4 billion takeover of Huiyuan, the country’s top juice maker: “Rumblings are that, after inking a new competition law earlier this year, mainland officialdom is itching to give it a run out. Now the market is worried the deal may be shelved, as Huiyang’s shares retreated Friday.” They’ve got reason to be concerned, since China does have a new anti-monopoly law and just how regulators go about enforcing it remains unclear.

That said, though, I think the Chinese are going to give this one the green light. As my BusinessWeek colleague Nanette Byrnes points out in her Management IQ blog, Coke earned lots of brownie points for the company’s Olympic sponsorship. Coke not only showed it was a friend of China by sponsoring the Games themselves, it also stuck with the Chinese government during the lead up to Beijing as a sponsor of the torch relay, which pro-Tibet and other activists targeted for protests. It’s probably no coincidence that Coke announced this deal just after the Games ended, with good will toward the company at its high point.

There’s another reason the Chinese government will want to approve the deal, a reason that has nothing to do with the Olympics. As some of the reader comments to my story last week point out, a state-owned Chinese oil company was interested in acquiring Unocal, a deal that fizzled due, in part, to security concerns from the U.S. side. Despite that setback, Chinese companies are looking overseas for acqusitions, a process that Beijing wants to promote. Lenovo is the most high-profile example, of course, with its purchase in 2005 of IBM’s PC division. If Beijing’s regulators give their blessing to Coke’s Huiyuan deal, that would be a pretty painless way for China to show that it’s open to foreigners coming in and taking over local companies. That willingness to play ball could in turn help Beijing gain some leverage when its own companies try to do deals overseas.

Reader Comments

Peter Hudson

September 8, 2008 4:28 PM

Trading tit for tat isn't going to happen. If Coke moves into China, Soda Pop isn't exactly going to threaten the National Security of China. However when Dubai Worlds attempted to the take over of Ports in the US, the US stopped that from happening as an Entryway into the US is National Security, the same as an Energy source (Oil & Unocal). We've already shown that National Pride can be sold for a dollar, such as the deal with Inbev assuming our Budweiser. Americans dont really care for the country except on 4th of July and 9/11, but someone would seel you down the river to make sure their pockets were full... Its sad how Materialistic this Country has gotten...

Andy

September 8, 2008 9:27 PM

Don't compare the timing between when Chinese company wanted to acquire Unocal with Chinese companies expansion today. Today, the US companies are in financial trouble, they need Chinese capitals.

Why should China allow Coke to buy Chinese juice maker when the US didn't want Chinese company to buy Maytag last year? Chinese government need to think twice. Sell the company to European or other nations, if they have to. But not to American companies.

Wang Gungwu

September 8, 2008 9:27 PM

The other reason the deal will probably be approved is that China does not have something like the US Congress – a paranoid, suspicious, anti-foreigner body only interested in killing Arabs and Chinese, not in working with them.

biztru

September 9, 2008 2:27 AM

Frankly, if one looks carefully, in future apart from culture there will be little separating the Americans from the Chinese. Maybe Coca-Cola should consider equal weightage of dual listing in both New York and Shanghai/HKSE.

Bushwhacker

September 9, 2008 3:10 AM

Sheer Arrogance. Yankees expected to buy Chinese companies while shutting out Chinese purchase plans on filmsy security reasons.

donchai

September 9, 2008 4:09 AM

I just want to commend this event several point as below.
Firstly, the investment between two company is the behavior in economical and marketing level but the certain goverment. Chinese offical should leave enough space to individual corporation.
Secondly, chinese enterprise have comparatively short run as other venerable one. So how to put himself into the revial of global competition is a compulsory leason. How it can learn without involved.
THirdly, this deal should be censor by goverment based on the national anti-monopoly law. It is the consideration of benefit to people but that of safety of economy and marketing.

Squeezebox

September 9, 2008 3:23 PM

What goes around the world, comes around the world. I think that Haier would make a good buyer for G.E.'s appliance business, but if the Coke deal gets nixed, how can the Chineese expect approval of the G.E. deal? Anyway, there's nothing to stop the Chineese from starting up rival soft drink companies.

Yindu Shi Jiba

September 10, 2008 12:48 AM

If the deal makes sense for Coca Cola, it does not make sense for Huiyuan. Block it and say no more!

Wang Gang

September 10, 2008 2:28 AM

America is not an ideal business partner. It's companies are neither. They are power hungry and arrogant. I don't like Americans their attitude. They act as if, you know what I mean?

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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